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BEBRFACULTY WORKINGPAPER NO. 1415

The Strategy Pyramid: A Framework for Strategic

Analysis for Facilitating Market Transactions for LowIncome Economies

Syed Saad Andaleeb

David M. Gardner

College of Commerce and Business Administration

Bureau of Economic and Business ResearchUniversity of Illinois, Urbana-Champaign

BEBRFACULTY WORKING PAPER NO. 1415

College of Commerce and Business Administration

University of Illinois at Urbana-Champaign

November 1987

The Strategy PyramidA Frameword for Strategic Analysis for Facilitating

Market Transactions for

Low Income Economies

Syed Saad Andaleeb, Graduate StudentDepartment of Business Administration

David M. Gardner, ProfessorDepartment of Business Administration

ABSTRACT

Are low-income economies destined to remain outstripped by the

developed world in all aspects pertaining to standards of

living? As things stand now in terms of development, several low

income countries would seem constrained by their strategic

stance. To achieve any measure of improvement in these

circumstances, these countries must engage in international

market transactions.

Entering the international market arena will, however, require

overcoming a number of barriers. This paper identifies these

barriers at three distinct and yet interrelated levels. These

include structural barriers within the country, competitive

barriers which require attention to relations management based on

interdependencies, and market access barriers suggesting how to

create demand pull situations through satisfying customer needs.

Three strategic areas represented by the STRATEGY PYRAMID are

highlighted in this paper to overcome the barriers. These

include product-market strategies, technology industry

strategies, and structural strategies. The subcomponents of each

of these strategies represent parameters which the target

countries need to blend. This will help them in formulating

appropriate plans to facilitate international market transactions

for improving their socio-economic conditions.

Digitized by the Internet Archive

in 2011 with funding from

University of Illinois Urbana-Champaign

http://www.archive.org/details/strategypyramidf1415anda

-1-

I. INTRODUCTION

Despite the increasing rhetoric on global poverty alleviation,

the world remains polarized between what has been characterized

as developed and developing, North and South, haves and

have-nots, rich and poor, or centre and periphery. Clearly, there

are gaps in patterns of growth, investments, consumption, life

styles, and related aspects between the two. This leads to

several questions. Can the developing countries ever bridge this

gap? What forces do they have to contend with? What are the

hurdles they have to overcome? Are there any lessons of

experience that they can emulate? From a strategic planning

perspective, what strategic choices do they have in addressing

and overcoming their present development dilemma?

The problem of economic growth has been viewed from a number of

perspectives such as the Marxian approach with its dialectical

inevitability of the socialist revolution, the stage theories

emphasizing a particular pattern of growth common to all

economies ( Rostow's five stages from traditional society to the

age of high mass consumption) , balanced growth theories dictating

a need for balanced and large scale effort to get an economy

moving , entrepreneurship as an essential ingredient of economic

progress capital oriented approaches in which capital has been

attributed a dominant role in the process of development, and the

basic needs approach. If nothing else, these competing theories

point out that development is an issue that is very complex and

will seemingly require multifaceted approaches to achieve any

-2-

success, no matter how small.

The focus of this paper is on international market transactions.

While market transactions are implicit in all the theories

mentioned above, it is our strong belief that by making them

explicit, an important component of development may be dealt with

more accurately . This choice is predicated on several

assumptions (Smith and Toye, 1979; Keesing, 1979).

First, improved international transactions can promote large

scale production for those products on which the developing

countries have a comparative advantage and relatively small

domestic markets. Second, by raising incomes, domestic trade

should expand demand, creating opportunities for learning, scale

economies, and a more diversified productive base. Third, it

could create and demonstrate the existence of markets - initially

caterd by imports - that can eventually be substituted by local

enterprise. Fourth, it could bring with it new products, new

technology, new standards, and new ideas, as well as assistance

in mastering them. Finally, international transactions can serve

as a source of stimulus and pressure from international

competition which can force focus countries to adapt to these

pressures by actually mastering the techniques and meeting the

standards of foreign competitors.

What motivates this paper is a search for strategies that could

be adopted by about 34 countries (referred to as focus countries

in this paper) designated by the World Bank as low income

-3-

economies who hardly seem important in international market

transactions. Their foreign debts are high and their balance of

payments (particularly the gap between imports and exports)

position is precariously adverse and growing. This, coupled with

many other problems, has created a situation in which the economy

of many developing countries are more dependent on the

developments and expansions in other economies. In other words,

they are not in charge of their own destinies. Consequently,

there has been some discussion that the focus of the problem is

not located in the developing country but outside it (Amin, 1976;

1977)

.

Given the potential importance of international transactions in

improving the overall economic conditions of countries engaging

in it, we attempt to stress that these 34 low income countries

need to develop strategies from a competitive marketing stance

rather than seek the concessionary approaches advocated by such

organizations like UNCTAD. This belief follows from the

increasing evidence that efforts of UNCTAD to gain concessions

for the developing countries through ideas such as the most

favoured nation (MFN) principle, the international commodity

agreements (ICA) the generalized system of preferences (GSP), the

multilateral trade negotiations (MTN) , and the like have not

produced any significant gains.

Since all countries, whether developed or developing, will act

only in their own best interest, we believe that developing

countries should not expect continuing favours or concessions in

-4-

terms of market access, technology, or higher amounts of aid from

the developed countries, particularly in an era of cut-throat

competition and a low growth world scenario (World Bank, 1983).

The literature on economic aid, for example, would support the

contention that aid dependence must be reduced. In this regard,

Henriot (1981) indicates that overall aid declined from .52

percent of GNP in 1960 to .34 percent in 1970 and continued

slipping to .29 percent in 1975. Clearly, reliance on aid may

have crippling consequences for the focus countries if they do

not develop alternate means of sustenance.

The idea of forging together strong regional or global coalitions

(as stressed by the proponents of the New International Economic

Order) which through their interventions and backed by greater

bargaining power could demolish the existing structure of global

domination also seems unworkable (a notable example being the

arduous negotiating process and frequent disagreements within

OPEC). As the Economist (1986) notes, attempts at rigging price

or production of commodities such as oil, tin, coffee, rubber,

etc. are discouraging after ten years' lobbying by the UNCTAD. It

also points to the dismal history of the international cocoa

agreements in which pacts to maintain stable prices foundered

with economic changes in the international markets.

Under the circumstances, it is not unreasonable to argue that the

developing countries will have to go it alone and mount

individual strategies to survive in a complex and conflict ridden

-5-

environment . In stressing this go it alone perspective, this

paper highlights three strategic factors that the focus countries

must continuously analyse to remain effective in their efforts to

improve international market transactions to achieve their

development goals. These include MARKET ACCESS FACTORS,

COMPETITIVE FACTORS, AND STRUCTURAL FACTORS.

The crux of the position we are presenting is that markets should

not be viewed as mere institutions independent of dynamic

determinants of demand and supply. Rather, we strongly feel that

markets must be viewed as highly complex, dynamic, and with the

power to exert powerful discipline and rewards. In addition, we

feel that the proper understanding of markets is from the view of

buyer/consumer, not the focus countrys' need to export. The

factors that represent this orientation and the consequent need

to understand them are briefly discussed below.

MARKET ACCESS FACTORS should be carefully analysed because it is

argued and emphatically stressed here that it is not concessions

and privileges that win customer favour. What gains favour is

customer satisfaction that must be continuously offered and

reinforced by the focus countries to build and retain customer

loyalty in favour of their products.

COMPETITIVE FACTORS deserve careful attention because, as argued

earlier, all nations are expected to act in their own best

interests and maximize their competitive strength to achieve

market control. In fact much of the current discussion on trade

-6-

is cast in the language of war or zero-sum games (Kotler and

Singh, 1983). Under the circumstances, the developing countries

must be able to take the best attack-defense posture to create,

maintain, and extend their grip on their chosen markets.

STRUCTURAL FACTORS are also addressed because of their critical

role in representing the extent of resilience, flexibility, and

maneuverability that the developing countries can command in

battling the complex market forces in the international

environment. Without attention to these factors they could

become vulnerable to attack from rivals, new entrants, or even

substitutes and lose whatever competitive advantage they may

have. Alternatively, they could be left behind if they are

incapable of adapting to the changing needs and wants of markets

in which potential customers are becoming ever more sophisticated

and demanding.

The ENVIRONMENT as a factor should also be considered in

analysing the complexities of international market transactions.

But it is an uncontrollable element and hence cannot be

considered as strategic. However it can determine to a

significant extent whether and to what extent adaptation can be

achieved in the international scene.

This paper assumes that focus country means some sort of

government-industry collaboration which would seem essential as

demonstrated by Japan's industry-MITI collaboration (Lazer,

Murata, and Kosaka, 1985) or South Korea's business-government

-7-

partnership. It also focuses on exchanges between focus countries

and the affluent developed countries on whom the bulk of trade is

currently dependent. But it is not necessary to preclude other

countries from the transaction model proposed in the following

sections

.

In section II an analytic framework is developed based on the

three strategic factors within which the focus countries can

assess their existing position in terms of several key variables.

By sheer necessity, elements of this framework are selectively

chosen based on the existing literature on marketing and

competitive strategy as well as our perceptions formed from

on-hand experiences with export development.

Section III assesses the strategic choices available to the focus

countries based on their available strengths. Two major

dimensions are developed that reflect the basis for strategy

dialogue to confront the challenges of dynamic market forces.

These include PRODUCT-MARKET strategy and TECHNOLOGY- INDUSTRY

strategy which implicitly or explicitly address issues

highlighted in section II.

A limitation of this paper, discussed in the concluding section,

is that it chooses not to address each and every factor having a

bearing on international transactions. Obviously such an

endeavour would be nebulous. However, it is felt that some of the

key determinants have been identified which could provide

strategic guidance to the focus countries in shaping the

-8-

appropriate course of action in their efforts at reducing

dependence

.

-9-

II. THE STRATEGY PYRAMID - AN ANALYTIC FRAMEWORK FOR STRATEGY

FORMULATION

To determine the areas in which the focus countries need to

concentrate strategic strengths, the key elements of the three

strategic factors are highlighted in this section. These three

superordinate factors constitute what will be referred to as the

STRATEGY PYRAMID (FIG.l). At the base lies structural factors in

which fundamental and enduring changes have to be brought about

to help form the basis for adapting and maneuvering strategy

options to confront market forces. Without a sound structural

base, it is contended that competitive strengths will be

attenuated. Thus a sound structural base is expected to provide

the foundation from which attack-defense strategies can be

developed to create and maintain competitive advantage. The

changes that have to be brought about at the competitive level

are relational in that various coalitions and interest groups

have to be dealt with in vying for position. The competitive

advantages are then expected to facilitate market access where

any changes have to revolve around the product-market

combination.

The key questions that the focus countries have to address

revolve around entering (choosing) a market, securing a foothold,

developing and penetrating the market, and maintaining a grip

(i.e. positioning and market share) on the market. To achieve

-10-

this, the task faced by the focus countries is to harmonize their

strengths on all three factors to achieve the best possible fit

between their existing and needed strengths.

Figure-1

The Strategy Pyramid

Needed Changes To Achieve

Product-Market

Market

Access

Factors

Customer Satisfaction

Relational

Competitive

Factors Defensive Positioning

Fundamental

Structural

Factors Flexibility

Adaptability

Resilience

-11-

2 . 1 MARKET ACCESS FACTORS

Although emphasized earlier, it must be reiterated that durable

market shares are gained through customer satisfaction. In this

regard the Japanese and the South Koreans have done some

remarkable things to gain favour.

For example, the Japanese, despite their emphasis upon quality,

also focus on customer satisfaction by stressing after-sales

service. They establish an adequate number of service centres so

that products can be quickly repaired, customer complaints

quickly handled, and good customer relationships fostered (Kotler

and Fahey, 1985). The implications for offering such

satisfactions are hard to quantify but the positive value of

goodwill generated from such actions cannot be disregarded. In a

similar fashion the focus countries must also endeavour to

provide satisfactions, not just products, if they are to gain

ground in their chosen markets. Entering a market is one thing,

achieving market penetration and ultimately attaining dominance

is something else (Kotler and Fahey, 1985).

In sum, the focus countries have to adopt the marketing concept

which stresses that "The key task of a business is to determine

the needs and wants of target markets and to adapt so as to

deliver the desired satisfactions more effectively and

efficiently than its competitors" (Kotler , 1980) . Several critical

aspects that impede the focus countries' access to international

-12-

markets are discussed in the following lines. These need to be

addressed and alleviated if the focus countries are going to

establish long term relationships with their chosen markets.

2.1.1. The Image Gap

It is argued here that concessionary measures will not guarantee

market access unless customers view products from developing

countries favourably. Thus, a key question here is whether

products from developing countries are perceived favourably. It

is important to assess this because from a marketing standpoint,

the more positive the attitude towards a product, the greater the

likelihood that it will be purchased provided it meets customer

needs. In this regard the focus countries seem to lack the brand

name based image used by leading marketers to command customer

allegiance and premium prices. Empirical studies indicate that

the country of origin has a considerable influence on the quality

perceptions held by consumers in various countries. A fairly

comprehensive survey by Bilkey and Ness (1982) corroborates this.

For example, Krishnakumar (1974), Wang (1978), and Hampton (1977)

indicate the existence of a positive relationship between product

evaluations and degree of economic development. Wang (1978) also

indicates the source country's culture and political climate as

significant variables in product evaluations. Gaedeke (1973)

indicates that specific brands might be evaluated higher or lower

when country of origin was revealed as compared with no country

of origin being given.

-13-

While there are several methodological limitations in this area

of enquiry, the implications of these studies are, however,

obvious. If consumer perceptions are negatively biased toward

products from any focus country, the critical priority of the

industry in that country is to develop awareness and confidence

in its chosen segments about its products. The case of Japan

serves as a good example of how they dealt with a similar

problem. It is widely known, for instance, that two or three

decades ago Japanese products conveyed a very poor image. To

overcome this they worked on it deliberately and logically for

almost twenty five years to achieve the penetration of the

Western markets which is contrary to the belief that Japan's

success is a recent and sudden phenomenon of the 1970s ( 1985).4

To the extent that the focus countries want to succeed, they will

have to invest in gathering knowledge about other markets and

focus on the marketing discipline to turn around the existing

negative perceptions about their products.

2.1.2 Political Barriers to Entry

Conventional wisdom about international trade asserts that free

trade among nations tends to promote specialization and increases

the output of those countries engaged in it. However, the

behaviour of nations suggests that policy makers or politicians

are either ignorant of this assertion or do not believe in it.

Alternatively they may choose to ignore the assertion to pursue

self-serving interests. Whatever the bias, evidence indicates

that they engage in political machinations favouring protection

-14-

(Paden, 1975). The recent spate of statements by politicians at

the highest echelons of the political sphere about how American

jobs have been taken away by the flood of foreign imports is a

case in point which could be a cause for concern for those focus

countries that depend on the US market.

Political considerations have often given way to various forms of

trade barriers which include tariffs, quotas, restrictive

regulations, preferential procurement, tax treatments, labour

policies, and domestic subsidies which are well known devices for

downplaying commercial trade among nations.

Political impediments are most likely to arise in salient

industries that affect some important host country objectives

like employment, regional development, defense, culture, etc. In

these situations it may be necessary to engage in the management

of relations with those national governments which provide good

opportunities for products of the focus countries. In this

regard, the degree of responsiveness to host government concerns

can help alleviate many of the impediments on which they can

exercise considerable influence. The Japanese strategy to invest

in automobile manufacturing facilities in the United States in

response to political outbursts that American jobs were being

lost to the Japanese is a good example of relational

responsiveness

.

Working closely with a certain host country's concerns may

ofcourse have implications for internal political rancour as well

-15-

as how other trading partners will view such trading relations.

This gets into very complex interrelationships which is beyond

the scope of this paper. However, it may suffice to say that

issues may be resolved preferably on long term economic

considerations rather than political ideologies that impede

growth. We do not wish to imply, however, that the focus

countries should not subscribe to any ideology.

2.1.3. Information Gap as a Barrier to Market Access

It has been stressed in this paper that the focus countries

should adopt a marketing orientation to provide customer

satisfaction. This calls for substantial investment in

information on trends, needs, wants, attitudes, and a related set

of factors that would help them adopt the marketing concept.

Unfortunately, this seems to be an area that has been neglected.

Even in the developed economies like the US, the contention is

that most companies have not yet adapted to the intensified

information requirement for effective marketing in a modern

economy (Kotler , 1980)

.

In contrast, it is held that the Japanese have been successful

because they have become attuned to the local requirements and

the wants and needs of different market segments throughout the

world. They monitor them continuously and insightfully and have

successfully developed new products to meet them(Lazer, et.al,

1985)

.

-16-

While the benefits of investing in information would seem to be

enormous not much is known about the information gathering

practices and capacities of the focus countries. By assembling

and analysing data on competitors, the economy, and demographics,

it is possible to spot new niches and develop new products

serving unattended needs. Given the strategic value of

information, it hardly needs stressing that intelligence

gathering activities of the focus countries must be improved.

However, it must be pointed out that customer based information

alone would not be adequate. Efforts must also be devoted to

monitoring competitive and technological developments in specific

product-market domains.

2.1.4 Distribution Effectiveness

A major criticism launched against exporters from developing

countries is their inability to adhere to delivery schedules.

This was pointed out in a seminar in Bangladesh organized by the

International Trade Center. A case in point is the supply of jute

sacks from Bangladesh to US grain exporters. If the sacks don't

reach the exporters on time, they cannot fulfill their commitment

to grain buyers and stand the chance of losing the deal.

Consequently they may be forced to look for alternative suppliers

or alternative means. In the Bangladesh case, delivery problems

resulted in the buyer switching to other suppliers causing the

country to lose a vital customer. It is, therefore, essential

that delivery is assured by the focus countries on a reliable and

consistent basis.

-17-

The particular problem cited above, it must be mentioned,

resulted from internal as well as international transportation

availability problems coupled with storage problems. These issues

must be resolved through subcontracting, leasing, or other

arrangements to remain credible to buyers in overseas markets.

2.1.5 Quality as a Strategic Access Factor

The consumer in many of the target markets is growing

increasingly affluent. With affluence comes an inclination to go

for quality. As Buzzell (1983) claims, 'almost everybody is in

favour of high quality' . As a result, quality has been a

cornerstone of the policies of most market leaders. According to

Ray Crock of McDonald's, quality, service, cleanliness, and value

has been the overruling theme of the organization. Experiences

also indicate that Digital (DEC) pursues quality with quixotic

zeal, Maytag offers ten years' trouble free operation,

Catterpillar zealously pursues the goal of building a better,

more efficient crawler tractor than anybody else in the world,

while an analyst calls P&G's pursuit of quality its "Achilles

Heel" (Peters and Waterman, 1982). Although the list can be

extended endlessly, the message is clear. The pursuit of quality

can help the focus countries reap rich rewards while its

disregard can mean ruination given the existing perceptions held

about their products.

Having identified five critical factors that are expected to

-18-

determine to a significant extent whether markets can be

accessed, competitive factors that can help shape market access

is developed in the next section.

2.2 COMPETITIVE FACTORS

The industrial entrepreneurs and policy makers in focus countries

need to understand the forces affecting international competition

to cope with the complex dynamics of overseas markets. There is

currently little evidence that such an understanding exists. This

is characterised by their aging and fragmented industries,

traditional products, lack of innovation, weak managerial

strengths, and poor bargaining positions.

To attain a sustainable differential advantage in international

markets the focus countries will need to contend with three

forces. These include uncertainty, slowdown in economic growth,

and numerous coalitions or interest groups. An understanding of

these forces can pave the way to creating niches in the

international markets that can be successfully defended.

-19-

2.2.1 Uncertainty in the Global Arena

The growing complexities and the attendant uncertainties in the

socio-economic environment has been clearly demonstrated by many

(Toffler, 1970; Pfeffer and Salancik, 1978) . This is more pervasive

in the context of international trade and commerce. For example:

1. there could be unexpected shortages of critical raw

materials (e.g. OPEC's policies in the seventies).

2. new technological innovations could completely take

away market shares (e.g synthetics replacing largely

the need for wool, jute, rubber, and other natural

products)

.

3. exporting firms and their government may join forces

in directing aggresive marketing policies (e.g. the

cooperation between Japan's MITI and private

sector)

.

4. improvement in technological sophistication of other

countries could intensify the competition from

rivals and new entrants (e.g. the rise to economic

power of Korea, Singapore, Hong Kong, and Taiwan).

5. intervention of host country governments to protect

their national industries could also be highly

disruptive.

Whether future turbulence is linked to these or other causes,

unpredictability is an issue that cannot be avoided, only

minimized. To the extent that uncertainty of operating in global

-20-

markets is high, focus countries must engage in environmental

scanning by improving their intelligence gathering activities.

While environmental scanning may call for resource commitments

beyond what is available, that fact does not diminish the

importance of being informed. Under the circumstances, focus

countries may have to rely on public sources of information or

other less expensive sources, at least initially.

2.2.2 Global Economic Slowdown

There are numerous signs that portend an era of slower economic

growth in the coming decades (Kotler & Singh, 1983). The World

Bank (1983) also contends that economic growth in the developed

countries will be slower in 1985-95, resulting in a slowdown of

world trade which could restrain the growth of developing

countries. Under such circumstances, focus countries would

seem to stand relatively little chance of gaining continued

favours or concessions from the developed world who are

themselves embroiled in gaining strategic market control. Without

concessions, focus countries may have to pursue trade policies

to create new niches or operate at the expense of other countries

through market share gains rather than market growth gains.

This would require a careful appraisal of where the industries of

any focus country are, should be, can be, and must be within a

competitive frame of reference (adapted from Kerin and Peterson,

1983). The ultimate goal is to secure a sustainable differential

-21-

advantage by assessing its strengths and weaknesses and

developing strategies that best suit the exigencies.

2.2.3 Coalitions As Competitive Forces Influencing Market

Exchanges

Porter (1980) provides an excellent frame of reference for

analysing the global competitive environment. According to him,

"the structural factors and market forces operating in the global

industries are the same as those in more domestic industries ....

the same five forces are at work, and the same underlying

structural factors determine their strength".

The five forces suggested by Porter include rivals, threats from

new entrants, threat of substitutes, bargaining power of buyers,

and bargaining power of suppliers. These forces serve as the

structural determinants of the intensity of competition that

focus countries could face in the international arena.

For example, rivalry among existing competitors has resulted in

internecine warfare as demonstrated by OPEC countries time and

again. Similar inner feuds have rocked other coalitions as well

(e.g tin, cocoa, rubber, sugar, etc.). In each case countries

engaged in rivalry have in general been left worse off.

Furthermore, as Gluck (1983) contends, "more and more countries

around the world are developing the capacity to compete

aggressively in world markets. They are willing to learn, adapt,

-22-

and innovate" . Threats from new entrants are obviously real and

could rapidly take away market share from any entrenched quarters

if they become complacent. The threat from substitutes has also

left many wondering about their rapidly dwindling control over

the markets. For example Bangladesh's share in the world

production of jute has fallen from a formidable 80 percent in

1947 to about 29 percent at present due to the forays of

synthetics into the country's established niches.

Bargaining power of buyers can also restrict the ability of

supplying countries to compete effectively. This can be

illustrated by the case of Zambia whose exports of copper account

for 70% of its foreign exchange earnings. Since only a few

countries are major processors of copper into finished products,

Zambia has not be able to bargain effectively. Although Porter

(1980) suggests the importance of choosing the buyer group as a

strategic decision, the luxury of choosing under some

circumstances does not necessarily lie with the suppliers. In a

similar vein, attempts at diversification to gain competitive

advantage may be severely restricted by suppliers when

technological and related resources have to be obtained from

abroad. If the dependence relationship is not satisfactory,

balance may be brought about in several ways. Pfeffer and

Salancik (1978), suggest structural changes, use of buffer

organizations, or changing the purpose of the organization if the

assymetry grows bigger and bigger. These suggestions clearly

hinge on the contingencies of the situation addressing which is

beyond the scope of this paper. It should be obvious at this

-23-

point, however, that understanding the structural determinants of

competition is essential for focus countries if they are to

survive in the viciously competitive international markets.

Having addressed the forces of competition that can shape the

strategic choices available to the focus countries, the last but

possibly the most important factor - structural factor - is

addressed in the next section.

2.3 STRUCTURAL FACTORS

The dynamic environment of international market transactions is

one of high uncertainty and volatility. There are no guarantees

for unstinted success. Japan's slowdown in trade in recent times

(Fortune, March, 1986) is a glowing example of how a powerful

trading nation is also subjected to the forces of uncertainty.

Analysts, however, believe that the slowdown is a temporary

phenomenon which the Japanese will soon overcome because of the

resilience, and flexibility of their underlying economic and

social structure.

We contend that the extent to which a country can weather the

uncertainties of the global environment depends on its

innovativeness, flexibility, and resilience reflected in its

structure. Two critically important structural factors that must

be harmonized in creating a country's ability to adapt to the

changes, or for that matter, to bring about changes, hinge on the

-24-

quality of their human resources and the country's technological

development. Although other factors could also be named, it is

felt here that these two make the critical difference. Their

importance should be evident from the following discussion.

2.3.1. Human Resources as a Strategic Factor

The importance of human resources is evident from the following

lines (Harbison, 1973):

human resources - not capital, nor income, nor material

resources constitute the ultimate basis for wealth of

nations. Capital and natural resources are passive factors

of production; human beings are the active agents who

accumulate capital, exploit natural resources, build

social, economic, and political organizations, and carry

forward national development.

According to Schumacher (1973), development does not start with

goods, it starts with people and their education, organization,

and discipline.

Clearly, developing strategic human resources as the basis for

meeting the challenges of international market forces would be a

key determinant of the outcomes achieved. Unfortunately, as the

World Bank (1980) contends, several factors affect the

effectiveness of human resource development programs in

developing countries. These include:

25-

. lack of political support

. shortage of financial resources, and

. lack of administrative/managerial expertise

To the extent that these problems can be identified, their

alleviation would ultimately determine the capacity of the focus

countries in creating the needed agents of change - strategic

human resources. Development of human resources in the focus

countries is particularly important because in a large number of

cases the industrial worker is generally believed to be a typical

migrant from a rural area who has had no work experience except

perhaps in agriculture before taking a factory job.

In a study by Sharma (1979) it is shown, for example, that the

socio-cultural background of the Indian industrial worker

reflects a rural background with little work experience. However,

the author claims that some adjustment in the industrial scene is

reflected in a larger proportion of the workers (in comparison to

earlier studies) with industrial experience who live in the

cities with their families, and demonstrate a higher level of

literacy than the population at large. This is a healthy sign

which indicates the formation of a class of industrial workers

with specialized job skills that offer many advantages. Such

studies in other focus countries are, however, few and hence the

quality of their human resources is difficult to estimate. It is

highly likely that many of these countries lack a class of

industrial workers as seen in the developed world.

-26-

The implications of this weakness for focus countries for

international trade is obvious. Clearly, these countries are

leagues behind in their industrial competence in comparison to

the developed countries. With a relatively low level of

industrial labour skills, the vast majority of the 34 focus

countries remain locked into occupations demanding skills that

are obsolete and fail to provide the flexibility and adaptability

that is required to satisfy the rapidly changing needs and wants

of the international markets. Unless this structural issue is

confronted head-on, it will remain as a critical weakness in a

country's ability to effectively cater to more refined and

diversified demands abroad as well as its power to thwart

competitive forays into its established territories.

2.3.2 Technology as a Strategic Factor

The level of competence, as well as the ability to bring about

technological change is strongly linked to growth. The explosive

development of technology since 1850 has radically altered the

ability of people to produce more and varied goods and services.

Over the last 100 years or so, it has increased the productivity

(per person) of the industrially advanced countries by as much as

twelve to fifteen times (Patel , 1985 )

.

Developing countries, in terms of technological capability,

remain ill-equipped, bereft of capital goods industry, and with

low technological skills. For the focus countries, the

-27-

acquisition of technology is crucial not only to growth but also

to the capacity to grow . Unfortunately, proposals to share

technology have, in recent times, emerged as a cause for

worldwide concern as new technologies remain jealously guarded by

their owners. Where available, much of the current technology is

licensed. When this occurs, "it forms part of a much larger

transaction covering provision of capital goods and equipment,

often of intermediate products, construction of plant,

management, marketing, and finance. In short, it is part of a

much larger package" (Patel , 1985 )

.

As Patel points out, the transfer of technology concerns many

restrictive practices such as exclusive grant back provisions;

challenges to the validity of patents; exclusive dealing;

restrictions on research, use of personnel, adaptations, export,

publicity, use of alternative sources of technology, and use of

technology after expiration of agreements. Such restrictive

practices, often illegal or inadmissible within developed

nations, have been widely imposed on developing countries. How

then can any developing country acquire this much needed factor

to aid it in its quest for competing in the international

markets?

While some aspects of technology spreads through published

literature, personal exchanges, and imitation and copying, most

of it is transmitted commercially. To the seller, the marginal

cost of selling an already developed technology may be small

while to the buyer its development could be very expensive. In

-28-

this situation, the developing countries find themselves in an

inherently weak negotiating position because of their

overwhelming dependence on technology from the West/North. Under

the circumstances, it is clearly necessary to focus on a

technology acquisition strategy that is feasible. This is

discussed later.

2.3.3 Other Structural Impediments to Growth

It has been indicated that the two previously mentioned factors

represent critical structural impediments to growth. A number of

other factors not discussed in detail also exert an indirect

effect on the development process. These include:

1. A very high proportion of population in agriculture

2

.

Underemployment in agriculture

3. Very low savings

4. High population growth rate

5. Poor credit and marketing facilities

6. Poor transportation and communication facilities

7. Low per capita consumption of energy and

8. A major proportion of expenditures on basic needs.

We contend that these elements be considered as the outcome of

underdevelopment rather than its cause.

Having focussed on the structural components of the strategy

pyramid, it is important to examine the strategic choices that

-29-

are potentially available to the focus countries in more specific

terms. These are examined in the next section. It may, however,

be mentioned that any analysis using the strategy pyramid should

begin with structural factors, and move on up through competitive

factors to market access factors because it is felt that each

higher level depends on its immediately preceding level.

-30-

III. STRATEGIC CHOICES

All too often, strategic choices of focus countries have been on

efficiency, i.e., making something cheaper or less expensive.

What is called for, however, is to focus on strategies to achieve

effectiveness in international market transactions. Effectiveness

refers to what Drucker (in Hofer and Schendell, 1978) has

characterised as doing the right things rather than doing things

right. While both are needed for building market strength, Hofer

and Schendell (1978) point out that organizational survival

depends much more on their effectiveness, i.e., how well they

relate to their environments. This is stated a little differently

by Pfeffer and Salancik (1978) who claim that effectiveness

derives from tha management of demand, particularly the demands

of interest groups (which in essence could be Porter's five

forces) upon which organizations depend for resources and

support.

In broad terms, these countries should not only attempt to

overcome their structural limitations as characterized by their

human resources and technology, they must actively seek to

achieve exchanges by choosing markets to serve and deciding which

competitors to compete with. This must be predicated on their

strengths and capabilities that they can bring to bear on the

exchange process. In other words, focus countries must develop

and match their competences with the opportunities and risks

created by environmental change. To achieve this, they need to be

-31-

both effective and efficient through addressing the key

components of strategy (Hofer and Schendell, 1978) which hinge on

defining the scope of operations, resource deployments,

competitive advantages, and creating synergy. Two major strategy

choice dimensions are suggested here that need to be effectively

coordinated and implemented to create a defensible position

through developing synergy and skillfully deploying resources.

These include product-market strategy and technology-industry

strategy. A third dimension, structural strategy through

developing human resources, is not elaborated in this paper.

3.1 Product market strategy

To achieve success in international market transactions, it is

crucial to select the right product-market combination.

3.1.1 Product Choice : In an era of vigorous competition in

growth industries like computers and electronics, it is obvious

that most focus countries have neither the technological know-how

nor the R&D capability to compete with fast track products. As a

result, in adopting diversification strategies from a commodity

orientation, it would seem best to target low technology products

in the mature stage of the product life cycle. In other words,

instead of concentrating on advanced technological products in

their growth stages, it may be strategically wise to concentrate

on simple basic products that have worldwide demand. Thus,

instead of trying to produce cars, computers, and electronics, it

-32-

may be better to produce nuts and bolts, buttons, doorknobs, and

the multitude of other products that satisfy the basic needs of

daily life and in which focus countries can rapidly acquire the

needed skills and possibly offer the most competitive prices.

3.1.2 Quality : As stressed earlier, quality can be used as a

strategic variable. Reseach based on the PIMS data base indicates

that businesses selling high-quality products and services are

generally more profitable than those with lower-quality offerings

(Buzzell, 1983). Thus quality and reliability must be offered as

a means to cultivating long-run confidence to secure continued

access to the markets.

3.1.3 Product Mix : To remain competitive in the long run,

strategies should be adopted that focus on product improvement

and proliferation, as well as on market development through

segmentation and positioning. It would seem desirable to

concentrate on a few products, gradually progressing from

consumer items to industrial products over time. Such strategies

have been adopted by the Japanese as well as the 'four dragons' -

i.e. Singapore, Taiwan, Hongkong, and South Korea (Kraar, 1981).

This could be further operationalized by market sequencing, i.e.,

gaining a foothold in a limited market first and then spreading

out from this focal point.

3.1.4 Responsiveness to Political Concerns : In designing

suitable strategies it may be necessary to consider the

possibility of facing political barriers when entering certain

-33-

markets. To avoid this, focus countries may have to, at least

initially, be responsive to host government concerns and work

with them to keep out of markets sensitive to political

protection.

3.1.5 Market selection : As mentioned earlier, it may be

necessary to progress from consumer to industrial products. This

may be accomplished by focussing on channels rather than on final

consumers. Initially, the strategy may be to sell production

capacity rather than branded products and use channel members to

gain entry. This is a strategy that many of the Newly

Industrializing Countries (NICs) adopted initially. Some continue

to do so by using brand names of distributors rather than their

own. It is, thus, not uncommon to encounter Slazenger tennis

racquets made in Taiwan or designer clothes made in Singapore

which are sold in developing country markets. Under the

circumstances, the channel members may take major responsibility

for setting standards and marketing finished products.

It may be possible in the longer run to evolve from a marketer of

production capacity to a marketer of branded products (Wortzel <&

Wortzel, 1981). When this happens, the producer can take full

responsibility for both internal and external design for

packaging and quality control.

Experiences from S.Korea's rise to industrial power provides

further insight into the proposed strategy. A World Bank report

(Westphal, Rhee, and Purselll , 1983 ) indicates that even though

-34-

most of Korea's manufactured exports are domestically produced,

some or all of the functions of organizing export activities may

be carried out by overseas firms. Thus, one approach is

international subcontracting in which an overseas firm buys

Korean capacity. In many cases foreign buyers are also a source

of product design. In the major export industries, for example,

nearly all firms sold a sizeable fraction of their exports under

foreign brand names. This could be a very viable entry strategy

for the focus countries. The World Bank report adds that most

Korean exporters spend little on advertising and a minority of

the firms rely on overseas firms to provide after sales service.

Clearly, foreign participation could play a particularly

important role in nurturing and strengthening product promotion

for the focus countries. If this dependence relation is sought,

the terms of the contract have to be settled such that clear

lines of responsibility and accountability are established to

diffuse potential channel conflict.

3.2 Technology - Industry Strategy

Given the product-market choices discussed in the previous

section, it is necessary to consider the technology-industry

strategy that would best suit the needs of the focus countries.

3.2.1 Technology strategy : The key to choosing technology is to

-35-

focus on that technology in which the country has a reasonable

chance of moving sufficiently down its learning curve to be able

to compete internationally (Ferdows and Rosenbloom, 1981).

Furthermore, the advantage in low cost labour must also be

exploited in fields that require some technological

sophistication that can be easily learned.

A key constraint, as explained earlier, is the acquisition of

technology. In this regard two options may be exercised. The

first is to engage in the acquisition of technology on an

increasingly commercial framework. Based on this choice, each

country must know exactly what it wants even if the price is

exacting. It must be ensured that the acquired technology can be

locally assimilated. The extent to which this can be achieved

would have to depend on ensuring the development of mastery by

the use of national counterparts working alongside foreign

consultants and experts and by sending nationals abroad for

better education and training. The importance of developing

local expertise cannot be emphasized enough because with

increased local capacity to undertake subsequent ventures,

domestic sources can gradually replace foreign sources.

The other option may lie in attracting direct foreign investment

which could include a package of entrepreneurial, managerial, and

technical skills; capital; improved technology; and in some cases

access to foreign markets. As UNIDO (UN Industrial Development

Organization) contends, foreign direct investment has been an

important element in the industrialization strategies of many

-36-

developing countries.

In this regard valuable lessons can again be learnt from Korean

experiences in their quest for acquiring technological

competence. According to a World Bank study (Westphal et. al.,

1983), direct foreign investment has been their principal source

of acquiring technological capacity - particularly in chemical

fertilizers, petroleum refining, and electronics. In some

industries, the first plants were built on a turnkey basis and on

a limited scale. Construction of second and subsequent plants

followed quickly with Korean engineers and technicians assuming

an increased role in project design and implementation, and at

scales much closer or equal to world scale.

In some cases, investments by many Japanese firms appear to have

been in the form of second-hand machinery which was transferred

to Korea after it could no longer be profitably used in Japan.

Focus countries could also selectively choose not the latest

technology but ones that could be profitably exploited by making

a worldwide search for such technology.

3.2.2 Industry Strategy : At the industry level some hard

choices have to made. These choices could be strategically based

on the life cycle concept. Three choices are obvious.

The first is to gradually move out of declining industries of

which many are expected to be found in the focus countries given

-37-

their reliance on outdated technology. A Bangladesh case is

readily available in this regard. This relates to jute which was

responsible for 69 percent of the country's foreign exchange

earnings in 1979. World import figures, however, indicate a rapid

decline in its requirements, particularly with the advent of

synthetics. While the situation suggests getting out of jute, it

could have serious repercussions for the economy as this is the

largest agro-industrial sector in the country. Moving out of this

industry would be particularly difficult because of a) exit

barriers that include specialized assets for which other uses

would be hard to find, b) expectation of turmoil caused by the

displaced workers and taken up by political activists and c) the

impact on farmers who represent the large majority of the

population and who cultivate jute as a cash crop as well as the

various subsidiary industries that have been built around jute.

Some emotional barriers could also be expected in the sense that

jute has been the mainstay of the economy probably since 1832

when it was successfully spun into yarn in Dundee.

The alternative is equally, if not more, harsh. Adhering to an

industry that slowly saps the strength of the economy is

certainly not a viable alternative because by neoorthodox and

traditionalist standards the performance of jute has been poor.

Not only has jute been unable to generate sufficient surplus,

rather massive amounts of subsidies had to be infused into- this

sector to keep it going. This has resulted in considerable

resource drain on the economy. Unless some durable niches can be

found for such declining industries they may have to be harvested

-38-

in a controlled way. How that can be achieved is a matter that is

contingent on the particular situation and cannot be specifically

addressed here.

The second choice is to go for those mature industries which are

simple to assimilate and for which cost leadership (Porter , 1980)

can be quickly attained based on the countries' low labour costs.

In fact cost based strategies are important because there seems

to be a shared belief among managers in high performance

organizations that low cost producers are the only sure-fire

winners (Peters and Waterman, 1982).

A third strategy is to increase the concentration ratio of chosen

export oriented industries to create economies of scale. Many of

the focus countries may not have been able to take advantage of

economies of scale because of their fragmented industry

environments. This may have been partly due to lack of access to

markets and partly due to complacency on the part of owners of

the firms to expand their businesses. Because of this, the focus

countries are unable to gain further cost advantages which could

give them greater competitive clout in challenging market forces

such as tariff barriers, substitute products, and technology

based cost reductions in the developed world.

In many countries, attempts have been made to overcome this

through the public sector or through consolidation.

In this regard Japan's experience is illuminating. To overcome

the competitive weaknesses of fragmented industries and to

-39-

realise scale economies, MITI's interventions not only included

controls on technology imports and staggered investment plans,

but also included the arrangement of mergers to increase industry

concentration (Shihonara et. al.1983).

To gain from the advantages of economies of scale, therefore,

focus countries should look to reducing fragmentation. This could

be achieved through vertical or horizontal integration depending

on the existing constraints. When achieved, economies of scale

through concentration can provide a fundamental strategic

advantage through lowered prices which is one of the irresistible

forces in market transactions.

3.3 Structural Strategy

To address structural issues even in a general sense is not easy

and a cursory treatment may not be worthwhile. Since part of

structural features have been addressed in technology-industry

strategy, two issues will only be briefly examined.

On the issue of developing strategic human resources, if the

problems portrayed by the World Bank (mentioned earlier) remain,

efforts must be devoted to rooting out these limitations. If this

can be achieved, we believe that the focus of developing

strategic human resources should be on specialised education

which must be technology centered. Thus, any new funding should

go for the creation of numerous polytechniques that teach

-40-

specific skills. It is these skills that, in the long run, are

expected to provide the flexibility and resilience that any

country should aspire to develop.

The other aspect that must be structurally intertwined with

strategy issues is that of a sound information/market

intelligence system. This issue is addressed here because the

need for information transcends all other factors enabling

strategy formulation. There is a crucial need to develop key

indicators on which information can be provided on a systematic

and regular basis to the decision making centres. Use of UN

agencies and other pubic sources of information are particularly

stressed. On special occasions, market studies could be

commissioned to focus on need based information.

A cursory treatment on these two issues are necessitated by the

fact that the exigencies will determine what specific strategies

can be followed by any particular country at a given time.

-41-

IV. CONCLUSIONS

While this paper attempts to capture key variables in a framework

for strategic analysis to enable focus countries to shift from a

position of dependence to some form of interdependence, we have

made a number of static assumptions. For instance, what are the

implications for strategic shifts adopted by any focus country?

Would a shift in strategy even survive if this engenders

hostilities by attacking vested interests? The effects of

possible retaliatory measures that could be adopted by other

countries certainly demands attention from a dynamic/evolutionary

perspective

.

The paper also assumes that any strategic alternative devised by

a focus country can be effectively implemented. This assumption

is not realistic because there is a difference between knowing

what to do and knowing how to do it. Although the second concern

is not addressed here it is important to draw the distinction and

refer to the important link between the two. In this regard the

success of the Japanese is attributed to a large measure on their

implementation capabilities (Shihonara et. al., 1983). A similar

belief is also held about Koreans; e.g., Jones and Sakong (1980)

state that Koreans are better at implementation than at planning.

For focus countries, their ability to implement plans will

determine how successfully they can operationalise their

strategies

.

-42-

Issues such as organizational climate, managerial incentives, the

work ethic, and other related factors which could influence

strategy formulation and implementation are further areas of

concern not addressed here. Although these issues merit

recognition, they remain beyond the scope of this paper.

Based on strategic management, marketing, and economics

literature, this paper attempts to engender strategic thinking at

the national policy level. To the extent that its adoption helps

tackle specific questions on various alternatives available to

the focus countries will determine the viability of the strategy

pyramid concept.

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HECKMAN I—

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